Cash rent is a fixed cash expense that may be very difficult to pay in a poor crop year or with very low crop prices. Increased risk from price and yield variations.Compared to land ownership, less capital is tied up in the land asset.The operator does not need to divide crops or income from sale of crops nor keep special records on expenses for the landowner as required under a crop-share lease.The operator can benefit from any windfall profits from unexpected crop price increases or unusually high yields.The operator has more incentive to strive for high yields.Potential for friction between the operator and landowner is minimized because of the landowner’s reduced participation in management.The operator has a relatively free hand in making management decisions.Require all or a portion of the rent to be paid in advance. ![]() Recording the written lease at the proper local government authority.Owner has financial risk of operator non-payment unless steps are taken to reduce this risk.Only crop-share or livestock-share leases qualify as an interest in a closely held business. Land rented under a cash-rent lease does not constitute an interest in a closely held business, which the decedent must have at the time of death to be eligible to pay federal estate tax in installments. Eligibility for paying federal estate tax in installments over 15 years after death could be jeopardized.After death, the heirs must not rent out the use-value land under a cash lease, not even to a family member.Before the landowner dies, a cash-rent lease can be used only to a member of the landowner’s family as the operator.To value the farmland in the landowner’s estate at its use value rather than its fair-market value for estate tax purposes, the following two requirements must be met:.This may not be a concern to retired landowners however. The landowner has little opportunity to build a base for Social Security payments because of the difficulty in establishing acceptable evidence of material participation.However, competition for land and appropriate requirements in a written lease can minimize this problem. There may be an increased danger that the operator will not maintain the fertility of the land, or keep buildings in good repair, especially if the lease is for only one year.Similarly, purchase of fertilizer, seed, or other inputs for the next growing season can be made in the closing months of the tax year to reduce taxable income. Under a crop-share arrangement and cash reporting of taxable income, the amount of taxable income can be shifted from one year to another through timing of crop sales before or after the end of the year. The landowner has fewer opportunities for income tax management.In average or above-average years, the landowner may receive less net income than from crop-share rent. ![]()
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